Module 2 Video/Other Flashcards
Production Possibilities Frontier (PPF) or Production Possibilities Curve (PPC)
It illustrates concepts such as scarcity and choice, tradeoffs, and costs (opportunity costs). The PPF graph is labeled with two different goods or services that are being produced (one on each axis). The table shows the various combinations that can be produced if all resources are used efficiently under current technology. (When studying the model, we’re going to assume that production technology does not change.) After all possible production combinations are labeled, a curve is drawn to connect the points – this is the PPF.
What we are able to do vs what we are not able to do with given resources and technology are described as what on a PPF
Attainable vs Unattainable
Attainable would be points located on or below the curve. Unattainable are points above the curve.
Where we should or shouldn’t be producing given our resources and technology are described as what on a PPF
Efficient vs Inefficient
If production is taking place at any point ON the PPF curve, we say that production is efficient since all of our resources, or factors of production such as land, labor, capital and entrepreneurship are being used.
If production is taking place at any point INSIDE, or BELOW the PPF curve, we say that production is inefficient and there would be some factors of production not being utilized for production.
Unattainable points would not be considered efficient or inefficient. Only attainable points are categorized in this way.
What it means if we want more of something as described on a PPF
Tradeoff
When production is efficient, meaning that we are operating at a point on the PPF, any movement on the curve to a different level of production involves a TRADEOFF.
If we are producing at an inefficient point inside the PPF, what is needed to increase production?
No tradeoff is needed. If we are producing at an inefficient point inside the PPF, production could be increased to a point on the PPF without having to give up any of the other good that is being produced.
Movement along a “bowed-out” curve, results in opportunity costs that ______ as we tradeoff production of one good for more of the other.
increase
In the beginning, inputs and labor moves easily from Product A to Product B production but as Product B production increases, it becomes harder and harder to continue to move inputs and labor to Product B production, thus increasing opportunity cost.
To recap, when a PPF is bowed outward, there will be increasing opportunity costs due to resources not being equally efficient in the production of both goods.
Opportunity cost is a ________ not a _________.
Opportunity cost is a ratio not a percentage
On the other hand, if you encounter a PPF that is a STRAIGHT LINE, there would be CONSTANT
opportunity cost.
This means that the inputs and labor used to produce the two goods are easily interchangeable and equally efficient in the production of both goods.
The Fundamental Economic Problem
is what we’re choosing to do with resources their best use
